Is Hokkaido Electric Power Company (TSE:9509) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Hokkaido Electric Power Company, Incorporated (TSE:9509) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Hokkaido Electric Power Company Carry?

As you can see below, at the end of September 2025, Hokkaido Electric Power Company had JP¥1.52t of debt, up from JP¥1.38t a year ago. Click the image for more detail. However, it also had JP¥203.1b in cash, and so its net debt is JP¥1.32t.

How Healthy Is Hokkaido Electric Power Company's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hokkaido Electric Power Company had liabilities of JP¥463.1b due within 12 months and liabilities of JP¥1.46t due beyond that. Offsetting these obligations, it had cash of JP¥203.1b as well as receivables valued at JP¥92.4b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥1.63t.

This deficit casts a shadow over the JP¥218.8b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Hokkaido Electric Power Company would probably need a major re-capitalization if its creditors were to demand repayment.

View our latest analysis for Hokkaido Electric Power Company

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

While Hokkaido Electric Power Company's debt to EBITDA ratio of 8.3 suggests a heavy debt load, its interest coverage of 8.1 implies it services that debt with ease. Overall we'd say it seems likely the company is carrying a fairly heavy swag of debt. We saw Hokkaido Electric Power Company grow its EBIT by 6.4% in the last twelve months. That's far from incredible but it is a good thing, when it comes to paying off debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Hokkaido Electric Power Company can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it's worth checking how much of that EBIT is backed by free cash flow. During the last three years, Hokkaido Electric Power Company burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Our View

On the face of it, Hokkaido Electric Power Company's conversion of EBIT to free cash flow left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But at least it's pretty decent at covering its interest expense with its EBIT; that's encouraging. It's also worth noting that Hokkaido Electric Power Company is in the Electric Utilities industry, which is often considered to be quite defensive. Overall, it seems to us that Hokkaido Electric Power Company's balance sheet is really quite a risk to the business. For this reason we're pretty cautious about the stock, and we think shareholders should keep a close eye on its liquidity. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example Hokkaido Electric Power Company has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.